(Corrects company name in third paragraph.)
Hess Corp. (HES) shareholders should elect all five directors nominated by billionaire Paul Singer’s Elliott Management Corp. at a May 16 annual meeting, proxy adviser Institutional Shareholder Services said.
Hess has “substantially underperformed” its peers and new leadership may improve results, ISS, a unit of MSCI Inc., said in a note to clients obtained by Bloomberg News today.
The ISS recommendation followed an endorsement of Elliott’s director slate issued May 1 by Glass Lewis & Co. The two firms collectively hold 60 percent of the proxy advisory market for mutual funds and other institutional investors. Egan-Jones Proxy Services, a third adviser, endorsed Hess’s board slate May 2.
“The dissident nominees appear to have more relevant, robust experience -- particularly boardroom experience -- than the management nominees, but also do not owe any allegiance to the incumbent CEO and directors,” ISS said in the note.
Singer’s Elliott, holder of a 4.52 percent Hess stake, is soliciting shareholder support to get its five nominees on the board, citing “unrelenting underperformance” and mismanagement. At the end of 2012, Hess had dropped 47 percent in five years. The company has gained 36 percent this year as it announced divestitures, a dividend increase and plans for a stock buyback.
Hess closed its last refinery in February and on March 4 announced it would exit retail, energy marketing and trading to become a pure producer and explorer.
Election of dissidents to the board might disrupt the company’s “persuasive, comprehensive strategic plan” to cut costs and lift production, Egan-Jones, the proxy adviser, said.
Glass Lewis disagreed, writing in its May 1 note that Elliott has offered “a compelling case” that an ineffective board at Hess resulted in “substantial damage to shareholder value over most any meaningful time frame and against any applicable peer group.”
Hess has proposed its own replacements for five long- serving board members, including nominees General Electric Co. (GE) energy CEO John Krenicki; Kevin Meyers, a former senior vice president of Americas exploration and production for ConocoPhillips; and Mark Williams, formerly on Royal Dutch Shell Plc (RDSA)’s executive committee.
Elliott rejected the company slate, saying board leadership retains close business or personal ties to 18-year Chairman and Chief Executive Officer John Hess, 59, son of founder Leon Hess.
“A lot of stuff they are doing right now is quite reactionary,” David McManus, among the five Elliott board nominees, told investors at an April 30 meeting in New York arranged by the fund. “I’m not sure whether they’re necessarily in the longterm interests of shareholders,” said McManus, a former Royal Dutch Shell Plc and BG Group Plc executive who also was vice-president of international operations for oil and natural gas producer Pioneer Natural Resources Co.
The other four Elliott nominees are Rodney F. Chase, former chief deputy CEO of BP Plc (BP/); Karl F. Kurz, former chief operating officer of Anadarko Petroleum Co; Marshall D. Smith, chief financial officer of Houston-based producer Ultra Petroleum Corp. (UPL) and Harvey Golub, former CEO of American Express Co. (AXP), a member of three corporate boards and former director for more than a dozen companies.
“I would look forward to entering that boardroom trying to put behind any tensions that may have been created through the strangeness of this proxy battle,” Chase, who ran BP Plc’s global exploration, production, refining and marketing businesses from 2001 to 2003, told investors at the April 30 meeting. “There is only one position for directors to take: We represent the interests of shareholders.”
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